Lots of lovely profits explains why the world's press make a pilgrimage to the
Detroit motor show every year, says Andrew English.

Once a year, Motor City invites the world's press over to view its latest and finest. The Detroit Motor Show, which opens to the press today and runs until January 27, is like going to a city zoo in the worst weather imaginable - I've been doing it for 20 years. In the ape house the 500lb gorillas (car industry bosses) strut their stuff. I've seen them read bedtime stories, ice skate, serve cocktails, cook, drive cars through stages and plate-glass walls, leap out of cakes, crowd surf, dance (badly) and even sing (even worse) in a bid to gain headlines.

After a decade of turmoil, bankruptcies, plant closures and sackings in the US motor industry, you'd have thought a period of calm might be in prospect. Not a bit of it and while the signs for the coming year in the US are of gentle growth and cheaper energy, there's a succession battle going on at each of what used to be called the Big Three car makers (General Motors, Ford and Chrysler), with their bosses, Dan Akerson, Alan Mulally and Sergio Marchionne, respectively looking for their replacements with varying degrees of success.

After the four horsemen of the apocalypse rode into Detroit with the actual or near bankruptcy of all three, you might wonder why we still make this crazy pilgrimage to Motown. What can these failed deadbeats possibly tell us Europeans about building desirable cars? Actually, quite a lot. For although a lot of American cars still look like skips and contain lacklustre technology and poor build quality, they are really quite profitable. And that's even on quite modest market sizes – American car-making break-even levels have tumbled.

So 2012 was the third straight year of market growth, with sales up 13 per cent to 14.5 million light vehicles. GM and Ford lagged behind with GM's sales of 2.59 million units up 3.7 per cent and Ford sales of 2.24 million up 4.7 per cent. The big winner, albeit from an incredibly low base, but with a fine range of profitable sport utilities and pickups, was Fiat-owned Chrysler with sales of 1.65 million units up 20.6 per cent on 2011. Other strong sellers in the year include a revitalised Toyota, Honda and Volkswagen, as well as Kia and Hyundai.

Yet the US economy isn't that strong, so what's going on here? "Americans are genetically incapable of saving," said an old friend who lives in LA. "The second they have money in their pockets, or even the hope of some, they're out there spending it."

Not the complete story, as Sean McAlinden, chief economist for the Center for Automotive Research, explains. "What's been driving this, is pent-up demand," he says. "America's cars are getting old, on average 11.1 years compared with about nine years in Europe. The tyres were just about falling off some of our cars and they needed replacing."

Yet confidence is brimming. Car companies are predicting a strong 2013 market with Ford positing sales of more than 16 million. Hydraulic fracturing (fracking) technology has released massive reserves of natural gas, which has reduced industry energy costs, manufacturing figures are up and recently the International Energy Agency predicted that by 2020, the US will be the world's largest oil producer.

Despite all this, McAlinden is guarded. "We don't think that the market will be above 16 million until 2020 at least," he says. "The forces that resulted in those sorts of sales [16.1 million light vehicles in 2007] were the same ones that gave us the bubble in the housing market and that's all gone now.

"There's not a lot of long-term growth over here, but it's where a lot of the profit is," he says, explaining that the cutbacks, closed factories, reduced salaries and worker and retirement benefits in the motor industry have enabled the big three to reduce production and build to real market demand rather than stimulate that demand with costly incentives. Market reality rather than theoretical economies of scale are driving the industry these days. The markets appreciate it, too, with GM and Ford stock at or near their 52-week high as the Detroit show opened last week.

"Last year GM made about $2,200 a vehicle in the US," says McAlinden, "and Ford made $3,200 per vehicle and that's because they were able to sell their cars and trucks to people who really liked and wanted them."

It's not all great news, however. Ford's hi-tech solutions to fuel economy, together with small European hatchbacks such as the Focus and Fiesta have done OK, but the blue oval has run into reliability problems with a series of engine fires in the 1.6-litre turbo engine and some customer resistance to some technology such as the dual-clutch transmission. More worrying for Ford is that its hi-tech but expensive small cars such as the Focus and Fiesta are battling in the market against GM's lower cost, lower technology Chevrolet brand.

"The previous Focus model sold for an average price of $15,000," says McAlinden, "the new one sells for an average of $21,000. The typical Ford has more technology than a Toyota. We thought the US public would never spend that much on a small car, but they have."

Well so far they have, but for how long when fuel is cheaper again?

The other worrying trait for the Big Three is their huge loss of market share, which leaves the door open for low-cost producers to fill the gap. At present that's the South Koreans, one day it might be the Chinese.